Monday, 20 July 2020
This week's view of grain and oilseed markets, including a summary of both UK and global activity.
There’s a lot of uncertainty over Northern Hemisphere crops sizes and this is underpinning global prices for the time being. Confirmation of existing forecasts is likely to be bearish, while further cuts (if large enough) could add support.
Though prices in the next couple of weeks will be strongly influenced by the weather with US/EU crops at critical stages, currently the global outlook continues to look well supplied.
Increased barley production forecasts for Europe, while demand remains uncertain due to the coronavirus pandemic make the barley situation look more comfortable. The wider price direction will be strongly influenced by maize and wheat markets.
Global grain markets
Global grain futures
Global wheat futures were supported in the early part of the week after SovEcon reduced its forecast for the Russian crop by 1.1Mt to 79.7Mt, but this is still an above average crop based on USDA data. The cut follows less than ideal conditions for spring crops in the first half of July, with warm weather forecast for the week ahead.
However, prices dropped back towards the end of the week. US and European wheat is looking less competitive into export markets after the recent gains, and there were also reports of speculative traders booking profits in the Chicago market. There was also pressure for European prices as the French wheat harvest approached the half way stage, amid encouraging barley yield reports from Poland suggesting potential for improved wheat yields.
Stratégie Grains yet again trimmed its forecast of wheat production in the EU-27 and UK last week by 0.6Mt, but raised its forecasts of maize and barley production by similar amounts.
The focus for the week ahead remains on yield reports, and weather for Russian spring wheat crops, plus US and European maize crops – which are all at critical growth stages. Hot, dry weather now would be negative for yields and supportive to prices, while benign weather could bring renewed pressure.
UK futures followed the global trend last week, with gains in the early part of the week. On Wednesday the Nov-20 contract re-tested £170/t level, but closed below again. Sterling continues to influence prices and the most recent effect has been to reduce the extent of any gains.
Delivered prices (Thu-Thu) also generally showed small movements, though there were reports of support relative to futures in some areas. With a small crop ahead, sellers are understandably reluctant to commit volumes while there is such uncertainty over yields, and this is influencing prices where volumes need to be purchased. We are anticipating that our reporting of the GB harvest will begin next week.
UK wheat exports totalled 95Kt in May, including 32Kt to Algeria (HMRC). This takes the 2019/20 season to date total to 1.14Mt, more than three times the total amount shipped in 2018/19 with June data still to come. For barley, 72Kt was shipped in May taking the July-May total to 1.73Mt vs 0.86Mt in the whole of 2018/19.
EU rapeseed imports have seen a slow start to the new marketing year, though will likely pick up in the coming weeks. Domestic prices have seen rises as harvests begin to get underway for many.
China intending to meet ‘Phase one’ deal commitments likely means significant purchases of US origin throughout the year. Bearish pressure is seen with clearer US weather forecasts benefitting production estimates.
Global oilseed markets
Global oilseed futures
Soyabean markets gained over the course of last week buoyed by better US export demand, with China purchasing 522Kt of US soyabeans. US soyabean futures (Dec-20) increased $1.56/t from Friday - Friday last week. Clearer ‘crop-friendly’ weather in the near future across key US producing regions, and large global soyabean supplies form some bearish factors for soyabean markets.
Milder weather is expected for US soyabean fields and will help support crop outlooks and ease concerns from the hot start to July. With US soyabean crops entering the key ‘blooming’ stage, weather is an important watch point for markets. US investment funds readjusted their soyabean stance with net-long position as a percentage of open interest at 7.8% as at 14 July, down from 10.8% on 7 July.
Malaysian palm oil futures rose 9.4% last week, caused by concerns of labour and supply issues for palm oil plantations. Support from wider soyabean oil price gains was also seen Disruptions to palm harvests have been reported amidst heavy rains in Malaysia and Indonesia, while foreign labour availability is reduced due to coronavirus lockdown measures. The Malaysian Palm Oil Association (MPOA) said this could mean potential annual production estimates could be missed by between 10-25%. If realised, this could support vegetable oil markets as a long-term watch point.
UK delivered oilseed prices
UK delivered rapeseed values rose considerably last week with markets still thinly traded. Rapeseed delivered into Liverpool (Nov-20) was quoted on Friday at £353.50/t, up £5.50/t week on week.
In comparison, Paris rapeseed futures (Nov-20) rose €0.75/t from Friday – Friday to close at €382.75/t (£348.60/t). The spread between domestic and European prices could narrow once EU rapeseed import volumes pick up. In the opening two weeks of the 2020/21 marketing year, the EU+UK imported 8.90Kt of rapeseed, compared to 65.8Kt for the same period last year.